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By Eric OnstadREUTERS • Monday October 1, 2012 5:32 AM

LONDON — A crackdown on small, inefficient rare-earth producers in China is likely to further
restrict supply from the world’s biggest producer of the minerals and support weak prices, mining
services group Rare Earths Global, or REG, said.

If recommendations in a Chinese white paper are adopted, the minimum output levels they will
require from each producer could result in the closure of rivals of REG, which operates in China
but is listed on London’s AIM market.

“With the China white paper coming up, I believe this will be advantageous. This will really
help us for the next two to three years,” Chief Executive Simon Ong said in a telephone interview
from China last week.

“That’s going to squeeze a lot of people out of the market in China, so production in China
should drop over the next few years as the stragglers are shaken out,” said Luke Webster, a company
spokesman.

China produces more than 90 percent of rare earths, a group of 17 elements used in defense,
electronics and renewable-energy industries.

On Aug. 6, it proposed new rules saying mixed-production rare-earth mines must have a yearly
output of no less than 20,000 metric tons a year and smelters must produce at least 2,000 metric
tons a year.

This could result in China’s reducing its mining of rare earths by a fifth, REG said.

“The goal of the Chinese government is to keep price levels at a certain level in the medium
term. In the short term, they might drop off a little bit more, but this should be the bottom,”
Webster said.

Prices have been falling since a speculative bubble burst last year, but they are still well
above levels before China clamped down on exports about two years ago, squeezing supply and
prompting the rally.